Historical Tidbits Archives – Page 34 of 56

April 8, 2021April 8, 2021

F is for Fraud

Enough of the accounting philosophy, let’s talk about something more fun. Fraud!

If accounting is as old as the hills, so is fraud. If you recall my post about Clay Balls a few days ago, you may remember that they were storage for tokens carried by tax collectors. The tokens were stored inside hollowed balls to “prevent tampering.” In other words, tampering–tax collectors collecting a few of the tokens to barter for their own purposes–was already a common practice in 3000 B.C.E. Where there are tax collectors, there are corrupt tax collectors, apparently.

Oops! My Warehouse Burned Down…Insurance Fraud

There was also ancient insurance, and with that came ancient insurance fraud. Ancient merchants purchased “bottomry” contracts (now there’s a word!) in Babylon as early as the third millennium BCE, as did Hindus, Greeks, and others. A trader would get a loan for his cargo and pay an extra fee for insurance, with the interest on the loan also helping cover the loss. When the ship came in, if he defaulted on the loan, the insurer would keep the cargo.

The Greek merchant Hegestratos decided to try an end run around his bottomry contract, in 360 BCE. He had received a cash advance and figured to keep it–and the corn–and claim an insurance loss. He put the corn in secret storage and sailed the ship, but empty. However, there were other passengers on the ship, and they were not too keen when they noticed him trying to scuttle the empty vessel. They chased him off, and he drowned. So much for early insurance fraud!

April 3, 2021April 5, 2021

C is for Clay Balls

Inventory. Tax records. Rations of bread and beer to the workers. Storage of food during the winter. The earliest civilizations were built on keeping track of things.

Accounting via clay tablet, tokens, cuneiform. Photo from the Oriental Institute at the University of Chicago

Before data warehouses. Before the invention of the steam engine, calculus, banking, or even the ox-drawn plow, somewhere between the wheel and the pyramids, the Mesopotamians created tracking systems.

We tend to think about the earliest people as hunter-gatherers. But nomadic hunters are the antithesis of foragers. Gatherers figured out eventually that if they stayed in the place with lots of bushes, bare survival turns into surplus food. Domestic the cow rather than chasing after it, figure out how to plant barley, and you have farming. Farming leads to population growth, and suddenly you have 40,000 people living in the Fertile Crescent, building cities and empires. You need armies to protect your grain, which requires the farmers to give surplus to a central authority to pay soldiers. Now you’ve invented taxation and a centralized administration.

Photo of broken clay ball with tokens inside, from the Oriental Institute, @8000 BCE.

April 2, 2021April 3, 2021

B is for Banking

Banks are like good hygiene, like brushing teeth and wearing underwear. A thankless resource, though someone needs to do it. People don’t like bankers, but they need them. People don’t like bankers because they need them. I explained why in the second post I ever wrote. But how does banking work?

Gringott’s Vault at Warner Bros. Studio tours, London

What Is a Bank?

Essentially, banks take your money and give it to somebody else. You could put your money in a sock under the mattress, but it’s a bit safer to choose someplace with big steel vault doors and complicated locks. Like Gringott’s. A bank might hold a Philosopher’s Stone, the royal treasury of the Lannisters, or the wealth of the InterGalactic Empire (who had Storm Troopers handling security). Modern banks spend huge sums on strong encryption systems–online vault doors–to keep your money safe.

Suppose your cousin Marvin wants to open a business, a combination sushi and ice cream store. Hey, they both need ice, right?! That’s Marvin’s business plan. The bank gives your money to Marvin as a loan.

Two problems here. First, Marvin may need more dough than your puny deposits, so the bank has to convince more friends and gather enough deposits in order to give out loans. Secondly, you may need some of your money back before Marvin can attract enough customers. He’s trying–he’s got the slogan: Come for the Eels, Stay for the Sprinkles! This is called a problem of liquidity.